The U.S. Cities Profiting The Most In The Stock Market And Housing Boom

If anything positive can be said for the current tepid economic recovery, it has been very good to those who invest in the stock market or own real estate.

Property owners have been able to reap higher rents and sale prices, and the stock market has soared while the overall economy has registered only modest gains. However, only a precious few have benefited from the bull market on Wall Street. According to Pew Research, only 47% of American households own some stock, down from nearly two-thirds in 2007.

And of those who do own equities, the upper crust control the lion’s share. As of 2010, the wealthiest 20% of U.S. households held 91.7% of all U.S. stock; the top 5%, a shade over two-thirds; and the top 1% controlled 35%.

While incomes for the middle and working class have stagnated in the recovery, the booming stock market helped swell the income of the top 1% by 31.4% through 2012. Overall, the rich now account for 50% of the country’s wealth, more than at any time since 1917, when the income tax was introduced, and well above the level in 1928, at the end of the Roaring Twenties stock boom.

Just as the current asset-driven recovery has had disparate impacts depending on social class, it has affected different regions in divergent ways. To gauge which areas have benefited the most from asset inflation, Mark Schill, head of research at Praxis Strategy Group, looked at the percentage of income derived from rents, dividends and interest in the nation’s 52 largest metropolitan areas and 100 most populous counties.

The Codger Economy

The top of our list is dominated by areas where retirees and aging boomers, particularly the more affluent, are concentrated. Some 57% of Americans aged 50 to 64 own stock, according to Pew, twice as high a percentage as those under 30. People over 55 control well over half the nation’s wealth.

Also as they reach retirement, seniors are less likely to be earning income from wage and salary work, further driving up the share of income from rents, interest and dividends in retirement hot spots. The most well-to-do retirees are the most likely to become migratory snow birds, clustering in the nation’s warmest climes.

This includes the top five metro areas on our list, led by the Miami-Fort Lauderdale-West Palm Beach Metropolitan Statistical Area, where roughly 26.5% percent of income was earned this way in 2012, compared to a national average of 18.2%.

It’s followed by Tampa-St. Petersburg-Clearwater, Fla., and San Diego-Carlsbad, Calif.

These trends are even more evident when we look at the nation’s 100 largest counties. The top of the list is dominated by wealthy retirement counties, led by Palm Beach, Fla., where a remarkable 39.8% of income comes from stocks, rents and interest payments. It’s followed by two other affluent Florida counties: Lee (39.6%), whose largest city is Cape Coral, and Pinellas (29.1%), which is the home county for both St. Petersburg and Clearwater. Other retirement counties at the top of the list include No. 7 Broward (Ft. Lauderdale) and Pima, Ariz., which contains the city of Tucson.

Superstar Cities

The surge of profits for investors also boosts incomes in some of the metro areas whose economies have done the best overall in the asset-driven recovery. This is most marked in the San Francisco Bay area, which added more billionaires last year than anyplace else in the country.

San Francisco-Oakland-Hayward ranks sixth on our metro area list, with 20.7% of residents’ income coming from rents, dividends and interest, and San Jose-Sunnyvale-Santa Clara comes in seventh (19.3%). This places them well ahead of traditional centers for plutocrats, such as Boston-Cambridge-Newton (16th) and, remarkably, the home of Wall Street, the primary beneficiary of asset inflation, New York-Newark-Jersey City (23rd).

Our counties list offers a more precise map of where asset-driven wealth is, showing that much of it is concentrated in the suburban reaches. Although much of the hype about new billionaires revolves around San Francisco, the real star in the Bay Area is somewhat more prosaic San Mateo County (fifth on our county list), home to tech giants such as Genentech and Oracle , and seven of the 10 largest venture capital firms in the Bay Area. In contrast, San Francisco County ranks 36th.

This diversion in the patterns of where investors and rentiers congregate can also be seen in the sprawling metropolitan area that contains the nation’s financial capital, the 19 million-person New York region. Greater Gotham is home to a remarkable four of the top 15 counties on our list, starting with No. 4 Fairfield County, Conn., a major center for the hedge fund and private equity industries, followed by two affluent suburban counties, Westchester (ninth) and Nassau (13th).

Among the five boroughs only one, No. 14 Manhattan (New York County) ranks in the upper echelon, while three outer boroughs — Queens, Brooklyn (Kings County) and the Bronx — are in the bottom 15 of the 100 largest counties. The heavily minority and poor Bronx ranks last.

Strongest Economies At The Bottom

Not surprisingly, many of the metropolitan areas at the bottom of our ranking are older Rust Belt towns, such as Cleveland-Elyria (44th) and Detroit (46th). These are places where poverty is more concentrated and much of the money has moved away, often to Sun Belt locales such as Florida.

However, the bottom of our list also features many of the nation’s most dynamic economies, including Raleigh, N.C. (43rd); Dallas-Ft. Worth-Arlington, (45th); Charlotte-Concord-Gastonia, N.C. (47th); Columbus, Ohio, (49th); and third to last and second to last among the 52 biggest metro areas, Houston-The Woodlands-Sugar Land, Texas, and Nashville-Davidson–Murfreesboro-Franklin, Tenn.

This appears to be largely a function of age. All these fast-growing areas are also thosemost attractive to young families with children. These people are drawn primarily by the good prospects for wage employment — needed to support their families and buy houses — and are less likely to depend on rentier profits. Clipping bond coupons may play a big role in some economies, largely on the East and West Coasts, and notably Florida, but far less in those areas that are growing the old-fashioned way, by working for a paycheck.

I would expect to see the affordable-housing, high-growth cities come up the rankings over time, as people in these cities will have the discretionary income to invest, compared to in cities where housing costs will swallow most of a household's income for 30 years.

It is wrong to assume that house value inflation can substitute for other investments in unaffordable-housing cities, because this can only ever be a temporary phenomenon that a lucky few benefited from. Many people can be outright losers from downside volatility too.

"......California led in the growth of millionaires but also those on food stamps. Sales reach a multi-year low last month yet 12 zip codes in So-Cal reached non-inflation adjusted highs in prices. Boomer wealth versus those in their 20s and 30s coming to terms with being part of the renter generation.......

".....Policies simply reinforce high prices for those already in the party but you need to sell to someone. So far, investors have picked up the slack. There is a reason for the record high number of young Americans now living at home late into their 20s and even 30s.....

".....Higher home prices with stagnant incomes is no good unless you follow the louder drum of those simply preaching that buying is always a great decision, in the long-run......In the graveyard of the 7,000,000 foreclosures I’m sure you will have some that carry a more nuanced view on purchasing real estate but why ask them? Let us talk about the person that bought that beach property and suddenly is a real estate millionaire! Let us only talk about the person that bought Google at IPO and not AOL at the peak. People have a massive tendency to confirming their own bias......I bought, therefore you should go out and buy that piece of crap $700,000 home. Inspections? Contingencies? Who needs a job with double-digit annual appreciation forever.....!

".....to think that it is a simple decision especially in this insane market is delusional. Keep in mind in California only 54 percent actually own their property (i.e., most with a mortgage of course)...."

This is great data. I have not seen too many studies that show where people with mainly investment income reside. While it makes sense that many of these people can be found in wealthy retirement type locations, I was wondering if you had any data that showed if State and local tax policy had any impact. So, while Florida is the most obvious tax avoidance and retirement state, would a place like the state of Washington even with worse weather have a lot of people with high percentage of investment income? Or on a smaller, more local scale, would places like Jackson Hole, Wyoming show even higher percentages of income from investments than this chart?